The collapse of America’s 16th largest bank has led the U.S. Federal Reserve and the Federal Deposit Insurance Corp (FDIC) to consider creating a fund to backstop banks that run into trouble over deposits as reported by Reuters.
The Silicon Valley Bank, known for its funding in the tech startup ecosystem was shut down and handed to FDIC by regulators. The bank failed to manage the sudden surge in demands for withdrawals by depositors coupled with a $1.9 billion haircut to raise funds and failure to raise funds. The SVB debacle has already wiped off $100 billion of U.S. banks in two days.
The uncertainty of the bank’s financial health was a trigger for depositors to rush to the bank to withdraw their funds. According to the report, the regulators are in discussion with bankers and sector specialists to create a contingency fund which could be used to assist banks with funds in case of investor panics and prevent events like the SVB collapse from happening with other banks.
© Vygr Media Private Limited 2022. All Rights Reserved.
